NSC vs KVP vs Post Office time deposit: Comparing interest rates, tax benefits (2024)

Big banks have started to raise interest rates on fixed deposits (FDs), and soon other banks may follow the trend to increase the rates.

RBI Governor Shaktikanta Das announced that the MPC has decided to keep its accommodative stance while keeping the repo rate, reverse repo rate, bank rate, and marginal standing facility (MSF) rate constant in the latest Monetary Policy meet.

Investors who are planning to park their funds in fixed income instruments can consider post office small savings schemes like the Post Office Time Deposit Account (POTD), National Savings Certificate (NSC), and Kisan Vikas Patra (KVP) as an investment option with guaranteed returns.

National Savings Scheme
National Savings Certificate (NSC) comes with a lock-in period of five years. Investment in this scheme can be made singly, jointly or on behalf of a minor.

One can get tax benefit under section 80C of the Income-tax Act, 1961. Although there is no upper limit to the amount of investment that can be made in an NSC, a minimum of Rs 100 has to be invested every financial year. An individual may open any number of accounts.

NSC certificates can also be transferred from one person to another, however in the case of NSC VIII, this can only be done once from the date of registration to the date of maturity.

The NSC 5 year tenure interest rate is 6.8% compounded annually and payable at maturity, which indicates that if Rs 1,000 is deposited on a monthly basis, it would rise to Rs 1389.49 after 5 years. Here the interest is not paid but rather re-invested. The reinvested interest is also eligible for deduction under Section 80C (except for in the 5th year).

Tax benefit
The interest earned each year can be reinvested, making it eligible for a tax break under Section 80C. Although there is no upper limit on NSC investments, the tax benefit under Section 80 C is limited to Rs 1.5 lakh per financial year.

Kisan Vikas Patra
Kisan Vikas Patra, or KVP, is another safe investment option among the post office's small savings programs. On maturity, money invested in Kisan Vikas Patra (KVP) doubles.
The minimum KVP amount is Rs 1,000, and there is no upper limit. The interest rate offered is at 6.9 % which is compounded annually. The amount invested doubles after 124 months (10 years and 4 months).

Tax Benefit
The interest gained is completely taxed according to one's tax bracket, and there are no interest distributions during the investment period. Investors in KVP do not receive any tax benefits.

Post Office time deposit
Post office also accepts time deposits which are similar to a bank FD. A Term Deposit (TD) can be placed for any of the four tenures- 1, 2, 3, and 5 years. Even a minor above the age of 10 years can invest in the scheme. Interest rate on Post Office term deposit is 6.7% for 5-year tenure. Interest is paid annually but calculated quarterly for these term deposits. The minimum amount to be invested is Rs 1000 and there is no maximum limit.

Tax benefit
The deposit you made in the 5-year fixed deposit account qualifies for an income tax deduction under Section 80C of the Income Tax Act of India, 1961.
The tax may be deducted at source by the Post Office if the interest you earn on your FD account exceeds Rs.40,000 per financial year for regular customers.

NSC Vs KVP Vs Post Office TD
Post office term deposits pay interest annually, whereas in the case of NSC and KVP, interest accumulates and is paid at maturity. Note that the interest money received in all three of these investing methods is completely taxable, depending on their income bracket.

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